Trump’s tariffs create turbulence in global markets

Remaining focused on established investment principles is essential

The first quarter of 2025 has been anything but steady for global markets. With the arrival of President Donald Trump’s new administration in the United States, economic tensions have surged worldwide. Global stock markets have been left rattled as sweeping tariffs, intended to bolster the American economy, were introduced. However, while these measures may aim to stimulate domestic growth, their ripple effects are reshaping global trade, inflation, and investor sentiment.

On April 2, Trump announced a comprehensive set of tariffs, arguing they would enable the US to “economically flourish.” The S&P 500 index, however, disagreed, falling over 10% in response and entering what is known as a market correction. Investors were further unsettled when Trump acknowledged the possibility of a US recession, referring to this period as a “transformation” for the economy.

Impact of escalating tariffs

The situation took a sharper turn when the White House unveiled higher than anticipated tariffs, affecting all imported goods into the US. Starting with a baseline 10% tariff, the administration swiftly expanded the scope to include a 20% levy on EU goods and “reciprocal” tariffs targeting approximately 60 countries regarded as the “worst offenders.” These new regulations, introduced on April 9, were framed as a response to what officials claimed were unfair practices hindering American exports.

The international trade landscape became more volatile as Trump escalated tariffs on China in a tit-for-tat battle with the second-largest global economy. Trump has imposed tariffs of up to 145% on Chinese goods, while China retaliated with 125% tariffs on US products.

Stock markets initially nosedived but partially rebounded after Trump announced a temporary 90-day suspension of certain tariffs, providing room for negotiations. Despite this recovery, markets are still lower than they were before the “Liberation Day” tariffs took effect.

What does this mean for the economy?

The long-term consequences of these policies remain uncertain, but the immediate impact is clear. Global economic activity has decreased, and company earnings have been impacted, further contributing to market volatility. The uncertainty surrounding future tariffs keeps industries and individual businesses anxious. Meanwhile, the threat of rising global inflation has complicated central banks’ decisions regarding interest rate adjustments even further.

Beyond these immediate concerns, the rise of “economic nationalism” is starting to reconfigure supply chains, increasing business costs and, inevitably, consumer prices. While this may seem troubling, history reminds us that market disruptions often create new opportunities for growth. Businesses with solid foundations can still provide long-term returns for investors, even in challenging times.

Staying the course in volatile markets

Investors encounter a significant challenge during times of heightened uncertainty.

Nevertheless, adhering to proven investment principles can make a substantial difference. The essential strategy is diversification. By distributing investments across various asset classes, regions, and sectors, you diminish reliance on any single area and minimise your exposure to severe downturns.

It is also essential to focus on the larger context. Market drops often occur more quickly than recoveries, which can be emotionally overwhelming. Resisting the urge to sell when prices are low is crucial. History shows that sharp declines are frequently followed by significant gains, and panicked selling often locks in losses while missing potential rebounds. Staying invested ensures that you continue receiving dividends and reinvestment opportunities, even during turbulent times. When in doubt, remember that effective investing requires a long-term focus.

Do you need help making informed decisions that are right for you?

Understanding how global economic shifts may impact your financial goals can be overwhelming. Whether you’re aiming to secure your financial future or navigate the current market landscape, we are here to assist you in making informed decisions. If you need further information, please contact us.

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